China's stock market is on edge! According to the Financial Times, foreign investors have been dumping Chinese government bonds for the second consecutive month.
Experts suggest that the Chinese government's economic stimulus measures, intended to boost the national economy, have prompted foreign investors to offload Chinese debt. Foreign holdings of the country’s government bonds have been falling for two months now, with the selling trend showing no signs of abating.
Analysts attribute the declining appeal of Chinese equities to a surge in new bond issuance by the country’s finance ministry. To make things worse, volatility in government bonds has intensified, driven by Beijing's intervention in the national economy.
A prolonged decline in the renminbi and Donald Trump's victory in the US presidential election have added fuel to the fire. The newly elected president is widely expected to take a tougher stance on China, including raising tariffs.
In early November, Chinese authorities announced new support measures totaling 10 trillion yuan ($1.4 trillion), aimed at reducing so-called "hidden debt" — debts incurred by regional governments and municipalities, the exact size of which remains unclear. However, experts believe it is large enough to cause massive problems at the national level.
At the same time, Beijing officials did not mention any additional measures to stimulate domestic demand seen as a key driver of economic growth. Against this background, economic prospects for China have notably worsened, with most equities suffering losses. Thus, China's main stock index, the CSI 300, has tumbled by nearly 7% over the past two weeks.
